Radio One, Inc Q1 2008 Earnings Call Transcript

May.22.08 | About: Radio One, (ROIA)

Radio One, Inc. (NASDAQ:ROIA)

Q1 2008 Earnings Call

May 8, 2008 10:00 am ET

Executives

Alfred Liggins - Chief Executive Officer

Peter Thompson - Chief Financial Officer

Linda Vilardo - Chief Administrative Officer

Barry Mayo - President of Radio

Analysts

Victor Miller - Bear Stearns

Bishop Cheen - Wachovia

Marci Ryvicker - Wachovia Securities

Shelley Bergman - Morgan Stanley

Fred Moran - Stanford Group

Operator

Welcome to Radio One’s First Quarter 2008 Earnings Conference Call. I have been asked to begin this call with the following Safe Harbor statement. During this conference call the Company will be sharing with you certain projections or forward-looking statements regarding future events or its future performance. Radio One cautions you that certain factors, including risks and uncertainties referred to in the 10-Ks, 10-Qs and other reports periodically filed with the Securities and Exchange Commission could cause the Company’s actual results to differ materially from those indicated by its projections or forward-looking statements. This call will present information as of May 8, 2008.

Please note that Radio One disclaims any duty to update any forward-looking statements made in the presentation. In this call, Radio One may discuss some non-GAAP financial measures in talking about its performance. These measures will be reconciled to GAAP either during the course of this call or in the Company’s press release, which can be found at its website at www.radio-one.com.

The conference call will be recorded and made available for replay from 1:30 pm today until 11:59 pm Eastern time tomorrow. You may listen to the replay by calling 320-365-3844 and entering the access code of 917-331. Access to live audio and replay of the conference call will also be available on Radio One’s corporate website, again, at www.radio-one.com. The replay will be made available on the website for seven calendar days following the call. No other recordings or copies of this call are authorized or may be relied upon.

I will now turn the call over to Alfred Liggins, Chief Executive Officer of Radio One, who is joined by Peter Thompson, the Company’s Chief Financial Officer.

Alfred Liggins - Chief Executive Officer

Thank you very much, operator, and welcome, everyone, to our first quarter results conference call. Also joining Peter and I are Linda Vilardo, our Chief Administrative Officer and Barry Mayo, who is our President of Radio. I am going to let Peter take over and talk to you about the numbers and then we are going to talk about operations and some further issues.

Peter Thompson - Chief Financial Officer

Okay, great. For the first quarter, the radio markets in which we operate were down 5% year-to-year. On a same station basis, our Radio division, excluding Reach Media, was down 2.3%. However, we had a major NTR event in the quarter, our Gospel Cruise, which, when added, pushed net revenue into positive growth territory with a 0.9% increase year-to-year for the Radio division.

On a consolidated basis, net revenue was $72.5 million, down 2.1% on a same station basis from the first quarter of 2007. Of this decline, 100 basis points was attributable to Reach Media where the comps included TV syndication and Sky Show revenues, which were discontinued in 2008. GIANT magazine was responsible for 70 basis points of the decline as they had a $600,000 one time sponsorship deal in the 2007 comps.

Looking at our spot radio business, our local advertising revenue was up by 0.3% against a decline of 5.3% in our markets. National advertising was down 11.4% year-to-year versus a decline of 8.2% in our markets. So, in terms of the business that we control directly, we substantially outperformed the market and we continue to work closely with our national rep firm to ensure that we maximize our share of national revenues.

Looking by market, we had year-over-year growth in Washington, Philadelphia, Raleigh, Indianapolis and Columbus, whilst we declined in Atlanta, Dallas, Detroit, Charlotte and Houston.

Turning to pricing, the Q1 average unit rates fell by 6% year-to-year, reflecting continued pricing softness. Our total number of spots sold increased by 6%. Looking by advertising category as expected political performed well as did financial and nonprofit. However, of the major categories automotive retail, telecommunications and entertainment were all weaker year-to-year. For the first quarter consolidated station operating income was $28.9 million, a decrease of 15.1% on a same station basis from 2007, which includes our spending on Interactive One.

Adjusted consolidated EBITDA was $22.2 million, a decrease of 13.6% on a same station basis from 2007. Operating expenses for the quarter were up 3.7% year-to-year on a same station basis normalizing against quarter one 2007 for the One Love Gospel Cruise at $1.9 million extra expense, Interactive One, which had an incremental $1.2 million of expense and the WPRS Washington station acquisition, which had an incremental expense of $0.3 million and also adjusting for stock option investigation costs of $1 million, which happened in Q1 2007 reduces that increase substantially and I will tell you what the normalized percentage is a little later on.

Aside from the cruise and our Internet activities, the only significant area of increased expenditure in Q1 was programming costs, which increased by $1 million. This principally related to new on-air talent deals, (inaudible) believe investment in talent forms part of an ongoing initiative, which will build revenue generating syndicated programs for the future.

Elsewhere, we were able to deliver cuts in travel and entertainment, marketing and promotion and 401K expenses. Normalizing for these three items that I mentioned earlier namely, the cruise, Interactive One and stock option investigations, our core expenses actually reduced by 0.6 of a percent for the quarter. This is a reflection of our focus on cost control. Much of the low hanging fruit has now been taken and we need to reengineer business processes and make consolidations across the group to increase profitability.

During the first quarter, we invested $2.9 million into our Interactive One division, which includes GIANT magazine. Internet ad sales from our radio websites including Reach Media generated revenues of $1.8 million in the quarter, which is a year-to-year increase of 15.2%.

Moving down the P&L, we provided a full valuation allowance for NOLs arising in the quarter, which resulted in a non cash tax charge of $8.5 million out of the $8.9 million provision for the quarter. And as part of discontinued operations, we took the final P&L charge of $7 million for impairment and one time sale related costs for the pending sale of Los Angeles. For the quarter, CapEx was approximately $3.2 million, an increase of $1.9 million year-to-year, which is driven by studio build outs and Interactive One.

As of March 31 2008, we had debt net of cash balances of approximately $805.8 million and our total leverage ratio for bank covenant purposes was approximately 7.66 times against the limit of 7.75 times. Our interest cover was approximately 1.60 against a limit of 1.60 times with a slim cushion similar to Q4, 2007.

The sale of LA is progressing well having cleared the FCC and we expect to close in May. This will provide significant breathing space with pro forma Q2 leverage projected in the mid-sixes for bank purposes after debt pay down. Our projections for 2008 show compliance with the existing covenant package for each of the remaining three quarters.

As promised on the last call, we have provided a breakout of the current and 2007 quarterly financials for Interactive One and Reach Media. These adjusted financials also reflect the current view of continuing versus discontinued operations with Los Angeles now included in discontinued operations. This is attached to the press release as supplemental financial information.

TV ONE had a strong first quarter with revenues up 42% year-to-year at $13.8 million and cash usage was down 30% year-to-year at $4.3 million for the quarter. Management remains excited about the prospects for those assets.

Subsequent to the end of quarter one, we announced the acquisition of Community Connect Inc. for $38 million in cash. The price paid was approximately two times the 2007 revenues and the company produced positive cash flow in quarter one. We believe that this asset will accelerate our ability to reach breakeven for our online strategy and we are currently working to merge the entity with our existing online business in New York, driving both revenue and cost synergies.

I will be able to provide you with more color on the combined financial performance of Interactive One and CCI on the next call. The Company recently disclosed in an 8-K filing details of new employment agreements with Catherine Hughes and Alfred Liggins. As the amounts involved are material, I would like to provide some context and a description of the process that the Board’s Compensation Committee undertook in establishing Mr. Liggins’ compensation package.

As you are likely aware, Mr. Liggins’ prior employment agreement expired in April 2005. Since this time and given the shift in media spend over the past several years, the Company has diversified and continues to diversify its business to become a multimedia content provider to the African American consumer.

Our media portfolio now includes our interest in TV ONE, a 51% interest in Reach Media, our acquisition of GIANT magazine and most recently our acquisition of Community Connect. Mr. Liggins was the chief architect of this diversification and was the founding visionary of TV ONE. Against this backdrop and looking to the future, the Board and the Compensation Committee determined that Mr. Liggins was both a unique asset and uniquely situated to lead Radio One into the future. In the early part of 2006, Mr. Liggins and the Board’s Compensation Committee began negotiating a new employment agreement.

The Committee engaged the services of outside counsel and a nationally recognized compensation consultant to assist and advise the Committee with its deliberations with respect to overall compensation. The Committee’s focus was twofold. First, it sought to structure incentives designed to maximize shareholder value within market parameters. Second, it sought to cure past compensation arrangements, the results of which the Committee deemed punitive. With input from its consultants and outside counsel, the Compensation Committee considered publicly available data concerning compensation programs offered by peer companies.

In reviewing these comparables, the Compensation Committee analyzed the complexity and diversity of the business models of these peers, as well as the contributions of the executives responsible for the creation, operation and strategic oversight of those models. The process was both dynamic and vigorous with the Committee meeting numerous times, having multiple discussions and reviewing various proposals before approving the final compensation package.

The Board of Directors of Radio One, including its independent members and each of the members of the Compensation Committee, firmly believes that these agreements are both in the best interests of the Company and its stockholders and reasonably incent Mr. Liggins to maximize shareholder value. The Board is confident that it acted reasonably and in good faith in entering into these compensation arrangements.

And with that, I hope that has been helpful in providing some additional color and detail on the numbers contained in the press release and I would like to hand over to Barry Mayo who will provide some information on our current performance.

Barry Mayo - President of Radio

Thank you, Peter. As Peter mentioned, year-over-year, our fission group’s Q1 net revenue was about +1, largely driven by strong outperforming by our stations over their markets in the local spot area. For the sake of clarity, since he already mentioned that Los Angeles, its numbers are currently in our discontinued operations. My numbers are slightly different. They are coming straight from Miller Capital and do include for Q1 Los Angeles.

In Q1, our total revenue, our markets were down collectively by 5.8%. Our stations though were down by 2.2%, thereby outperforming our markets by 360 basis points. A closer look at our revenue performance is really like a tale of two cities with local and national providing two different stories. As you know, our industry has suffered an extremely soft first quarter nationally and Radio One suffered a bit more than most because of our historic reliance on the entertainment category.

In the first quarter, our markets were down nationally by 9.5% and our stations were down by 10.7%. We underperformed our national markets by 120 basis points even though we booked $1.2 million in political advertising in the quarter. Of the five big categories that make up the bulk of national advertising in America, entertainment was down across the country in Q1 by 23% due to the writers strike. Last year, in Q1, the entertainment category made up a full 25% of Radio One’s entire national advertising. So our national business got hurt in Q1 of this year a bit disproportionately.

Meanwhile, the station group outperformed their markets and local spot business admirably in Q1. Our markets were down locally by 6.4% while outstations were up by 20%. So for Q1, our stations outperformed our markets locally by a total of 720 basis points and we outperformed those markets locally in each of the three months. To whit in January, our local markets were down by 6.3%; we were up by 1.8%, 710 basis points. In February, our local markets were down by 4.2%; we were up by 2.6%, overachieving by 680 basis points. And in March, our local markets were down by 8.8%; we were up by 1.7%, a 710% basis, 710 basis points of out performed.

I also wanted to say before I conclude that we are pleased to announce that in Q1 we signed the comedian, television and movie star, Mo’Nique to host a syndicated afternoon drive show, which will start sometime in June. Mo’Nique is the biggest African American female entertainer in the country and we are excited about the ratings potential of her show in our initial eight Radio One markets in which her show will appear. Thank you.

Alfred Liggins - Chief Executive Officer

Thanks, Barry and congratulations because obviously the things that we’ve put in place and you’ve put in place since joining our starting to pay dividends. As our Radio group is outperforming the industry, we expect to have continued out performance. It could be lumpy. January and February were better than March, primarily due to national, but we are focused on that. Barry is focused on that and I really believe that we’ve turned a corner in terms of our operational structure, the team that we have in place. Nothing is perfect and we are not completed yet, but I think we have the core nucleus of a team that actually can deliver the kind of results that we have historically.

Barry mentioned Mo’Nique and the launch of her afternoon drive show, which is sort of a good segue into my conversation about diversification. Reach Media, which you now have more color on in the financial statements as Peter has come, essentially has historically been the Tom Joyner syndication platform and also a very popular website called BlackAmericaWeb, which is also available in our Interactive One offering. But the goal is to turn Reach Media into the premium African American radio syndication content network.

So, Tom Joyner is the lead dog there in the flagship, but other products that Reach will be handling and syndicating for us are the Rickey Smiley Morning Show, the Yolanda Adams Morning Show, the Mo’Nique afternoon drive show and another host of other syndication products. And we believe that if you combine the audiences of all those shows, along with our station base, and with what Reach currently has, it is the dominant, excuse me -- the dominant network platform in network radio and we are going to continue to build that up and make that company much more than it has been in the past through many, many more offerings in the future and the folks over at Reach Media, led by David Kantor and Oscar Joyner, are very experienced in what they do and we believe that Reach will ultimately become a much bigger and more profitable asset than it already has been for us. It has been a pretty good deal for us.

And so that is one of our diversification strategies that happen to also be fed by our terrestrial Radio group. Second, we talked about TV ONE. I have mentioned a number of times that this is the inflection point for TV ONE where, over the next 12 months, it goes cash flow positive and Peter, for the first time, gave you guys some numbers in terms of revenue growth.

Subscriber count is kind of in the low 40 million household ranges right now. The two big distribution deals that we don’t have are EchoStar and Cablevision and quite frankly, they will probably be very difficult to get and will probably take some time. So now, our real focus for TV ONE is to improve our ratings, because while we have good ratings, we don’t have great ratings and we don’t have any hit breakout shows yet that actually generate appointment viewing and so we are focused on that, but our license fees are starting to kick in and the trajectory should be pretty exciting.

From here on out, we have still got work to do as you do with anything, but it is four years and some change old and we took a big leap of faith five years ago when we decided to do it and I am really glad we did do it because, as many of you know, the traditional radio business, along with other traditional mediums, are flat to down businesses now. So, to be in a sector that is not wholly advertiser-supported like the cable network business is a good thing for us and something that no other radio company in the space can say that they have in their arsenal to create value in the future.

The thing that I am most focused on right now, which could be an opportunity as big as TV ONE, maybe bigger, is our online activities. For years, I have been talking about our online strategy. All the radio guys have all built digital divisions and everybody kept saying, well, what is your strategy, what is your strategy, when are you going to develop it? And quite frankly, I have spent less time, we’ve spent less time and less money on our radio sites because I wanted to build a strategy and build a division/company that would be something that could actually be extraordinarily formidable and ultimately win the entire African American space. I just didn’t want to have good radio websites and so we developed Interactive One and we committed $30 million to fund Interactive One and Interactive One essentially was a collection of, excuse me, Interactive One was essentially made up of two business strategies.

One was the creation of original content verticals in the entertainment, faith and family, women’s lifestyle and news spaces and we have actually launched newsone.com and the urbandaily.com, which is our entertainment site and we will have a women’s lifestyle vertical launching here within the next two to three weeks called Hello Beautiful and then our faith and family vertical will launch soon thereafter and original content online for African Americans is not a very robust market and we hope to make it much more robust as African Americans close the digital divide and proliferate online and ultimately, because they are not now, get counted for their actual usage in comScore.

The second part of the Interactive One business is the creation of a vertical ad network, which is the sort of hot genre online now. You may be familiar with vertical ad networks like glam.com or Jumpstart -- Glam is a women’s vertical ad network or Jumpstart, which was an automobile vertical ad network or Gorilla Nation, which is essentially a vertical ad network/rep firm that actually doesn’t really create content and Forbes has launched a vertical ad network and Martha Stewart has and BET and we have done the same. We believe that our vertical ad network has (inaudible) African Americans has a better chance of succeeding than anybody else’s because one we start with a large online position of owned and operated sites. There are 50 radio station sites, a TV ONE website, adding BlackAmericaWeb in from Tom Joyner and so we start from a base.

We actually picked up a big affiliate relationship off the bat and when we picked up the number one hip hop site called allhiphop.com, which has almost a million unique visitors and they were our first third party publisher and we represent them in their ad sales. And if you put together all of our owned and operated sites along with the allhiphop site, we had about 1.6 million users.

Then, the other competitors in the space were Community Connect, which is an ethnic niche social networking company, AOL Black Voices, which has about three million unique visitors and BET.com and then Interactive Corporation decided they were going to launch an African American initiative that launched called RushmoreDrive, which is essentially a black search engine.

CCI decided to put itself up for auction because they felt like they needed to combine with a larger multimedia partner and we were fortunate. I think that the other folks were preoccupied that we were able to acquire their company, one of our largest competitors.

And CCI brings a lot to the table and the numbers that I am throwing out are comScore. CCI’s primary site, which does about 90% of their traffic and their business is blackplanet.com, which was one of the original social networks. They were around before black -- before MySpace and before Friendster and before Facebook. And they do about two million unique visitors a month according to comScore. We actually believe the number is much higher because comScore radically undercounts African Americans and that number doesn’t include the other sites that they have. They have got a Hispanic site, an Asian site, a gay and lesbian site and also a faith-based site.

But long story short, if you combined their two million unique visitors on a per month with Interactive One at 1.6 -- 3.6 million total unique visitors makes us number one in the space delivering African American audience online. And more importantly, because of the huge engagement in terms of page views from CCI and allhiphop, we do over 600 million page views per month, which makes us number one by a vast margin in terms of usage.

And the whole idea behind Interactive One and CCI is to create a full-fledged online company, not just great radio sites, but a full-fledged online company that can actually compete for online dollars because, unlike my other radio brethren, I believe that current digital revenue, although it is growing at a nice little double-digit clip, I believe they are just repurposed radio dollars. In fact, I know that they are just repurposed radio dollars because I have had enough conversations with media buyers. So, if Toyota decided to spend $1 million last year in Washington DC radio, basically they are coming back this year and saying we are going to spend $800,000 in radio and $200,000 online.

CCI/Interactive One allows us to play for dollars and compete against AOL and compete against Google and compete against MySpace at interactive agencies. We were able to buy CCI at about two times revenue. It is a real company; it has got almost $20 million of revenue, lost a couple million dollars last year. In first quarter this year it made a couple hundred thousand dollars.

As Peter says, we are in the process of merging those two businesses now and essentially getting to scale faster is going to allow us to spend less money on Interactive One. We’d allocated $30 million over three years to get to breakeven and that number is going to come down. We are three weeks into this acquisition, so it is still a work in progress, but I have got high hopes for it. When you start to diversify a company and you are really changing who you are fundamentally, and that is what we are doing Radio One.

We are becoming an African American targeted media and content company. We are creating univision for black America. It takes time. And it has taken four plus years on the cable network. Interactive is going to take a shorter amount of time from inception to breakeven, but as many of you have been following the Company know, I have been talking about our interactive strategy for two or three years. So if you combine the time I started talking about it to the time we breakeven, that is going to be a five year process as well. But, yes, I just want you to know that we believe that we have the best strategy of any radio company -- forget what genre the radio company serves -- to flourish in the future, not survive, but flourish and that is the team we have put together and that is the execution that we are committed to and with that, I think I would like to open the forum up to questions. Operator?

Question-and-Answer Session

Operator

(Operator instructions). Our first question is from the line of Victor Miller representing Bear Stearns. Please go ahead.

Victor Miller

Good morning. Thanks for taking the question. First of all, thank you very much for the detail on all of the divisions. That is extremely helpful. And thank you for the inspired comments on the business. First of all, as you look out at the second quarter, Barry and Alfred, are you seeing the similar kind of trends that you think you are outperforming the market and what does the market look like overall? Secondly, if you could go through it, Peter, the -- if you just go through the breakout, you have programming technical in the quarter versus a year ago up 8.5%, SG&A up 11%, but maybe you could just go through just the radio division one of the things we should subtract out of that division to get kind of what the core growth looks like so we can project that kind of going forward now that you have given us all the quarterly detail? And lastly, you did put in your press release, Alfred, the reality that you have got the $150 million share repurchase program and with the stock below $1 here, how are you going to revisit that, especially in light of what you’ll see in LA? Thanks.

Alfred Liggins

Yes, let me address that because fascinating actually is too cavalier a word, but I try to, try not to get all bent out of shape about the stock price because I can’t control it. Certainly multiples have contracted tremendously in this business. Not only has the radio business been under pressure as a medium, as traditional media has also been under pressure as the Internet sucks up dollars and there is more competition for satellite, etcetera, but we also happen to be in the middle of a recession and so consumer exposed companies, ad exposed companies, get hit and highly leveraged companies get hit and most media companies carry what most investors would consider a significant amount of leverage because we run such high margins and throw off a bunch of cash flow, we all feel comfortable running from four to six times.

And so, the stock gets hurt, but our stock has been crushed, so have a lot of others, but it just boggles my mind where it trades at. So to your point, we have announced a $150 million buyback. We fully intend to buy back stock. We want to get all of our transactions closed get our balance sheet cleaned up and then decide exactly how we want to execute that stock buyback. So, on one hand since we happen to be, my family is the largest shareholder, when the stock is below $0.01, it’s very painful. I have ridden this stock from $20 down to $0.01. We haven’t sold very much stock over the 7 years that we’ve had the company. So, we bear the brunt of that decline by the same token, I know that we are going to continue to hold shares and so the opportunity to buy the stock back below $0.01 is a benefit. Now, we are pretty transparent and forthcoming. We kind of telegraph to the market exactly what we are going to do and then we do it. And so yes, once we get the balance sheet cleaned up Miami is closed, we get LA closed then we will figure out what the exact program and what the timing is for share repurchases, but we fully intend to do that. Some investors have been concerned about the economy not knowing where the economy is going to go, our ability not to control it and our concern about it levering back up such that we are in danger of flirting with our covenants again. We are fully aware of that danger and we plan to structure a program that limits our exposure from that perspective. We don’t plan rule number one, job number one here is to stay in compliance with our covenants. So I hope that answers your question, i.e., stock buybacks. Peter?

Peter Thompson

So if we turn to Q1 results for the radio division and compare it for the same quarter last year, Victor, you will see programming and technical $13.7 million for this year versus $12.6 million and that is the million dollars that I was referring to in terms of additional programming expenses that we have got, which includes -- the two big components are Ms. Jones and Mo’Nique, but also we have had other renegotiations with other on-air talent, but that is really what you’re seeing in that line.

And then the next line down, the SG&A, there are really four main components to that move year-to-year, which is moving from 20.1 to 22.4. The One Love Gospel Cruise, we had an additional $1.9 million of costs this quarter that we just didn’t have last year because we took over the whole boat. So, it was a more expensive undertaking, but it was profitable and I think, next year, we will make a substantial profit on it. This was the first year of having the whole boat. Next year, we think, and for future years, we think that will be a very profitable franchise for us. So that is the first item.

The second item is we are adding in WPRS costs of about $300,000. The third item is the stock option investigation costs that I mentioned of $1 million. That goes against us because they were in there in ’07, but not in ’08, and then something I didn’t refer to was we had an increase in the bad debt provisions of $700,000, which is reflected in that line. And that is not because we see the market as any worse. The reason I didn’t mention it in the body of my explanation is it’s really a financial thing. We had a write-back in Q1 2007 relating to year-end balances and that did not recur in ’08, so it’s a $700,000 hit there. And then of the balance of about $400,000, it is made up of various components, probably too small to bore you with now, but I am happy to follow up with you.

Victor Miller

The bottom line, though, if you looked at programming SG aside of those five elements, it sounded like it was a fairly flat to mundanely slightly up quarter?

Peter Thompson

Yes, stripping those items out that we mentioned, we actually had a decrease in core expenditure of around 0.5%, 4.6 of 1% and to be honest, we were pleased with that because it has taken a lot of sweat and effort and peoples travel back and various nitty-gritty exercises that we have done. So to hold that better than flat, we were pleased at. Obviously the market is tough and we had hoped we were going to see stronger growth, so we have been and I’ve clocked accordingly. As I mentioned, we have done a lot of the low hanging fruit now and we are now going to have to get into leveraging our procurement strength across the whole group, which we have never done before centralizing some functions that we have never done before. So we have taken the low hanging fruit and now we are into several months of reorganizing things.

Victor Miller

So as we look going forward, is it going to look more like when you actually report the rest of the quarters? Are the numbers going to look more like the high single digit because of different add backs and changes or it is going to look more like the negative .06 as we look going forward?

Peter Thompson

I think it will be low single digits, but what is piling in on top of that is obviously the spend that we have on the Interactive division, which is why I think it is helpful to give you that breakout, so you can see exactly where the costs lie because if we just report the headline number, we are going to have $2 million to $3 million of Interactive expenditure every quarter, which wasn’t there in the prior year, so it is going to swamp our numbers.

Alfred Liggins

Yes, one other thing for shareholders and probably bondholders, the bank is cool with it, but shareholders and bondholders our EBITDA forget CCI for a second, but pre-CCI, our EBITDA is going to drop by $10 million just because that is the amount of money that we are spending on Interactive. So, it’s going to look ugly on its face, but the bank understands we need to spend that money to diversify our business in order to get into a position where we can grow revenue and grow cash flow. But what the banks sees and then what an equity investor or bondholder see are two different things. And so look that could be affecting our stock as well because reality is the EBITDA is going down, but we think that put it this way, the last time I got advice about doing something off balance sheet so that it didn’t hurt our stock was with TV ONE and I did TV ONE off balance sheet don’t run those off of your P&L and you know what, I shouldn’t have listened; it was a mistake. If I hadn’t listened, we’d own 70% of TV ONE. We would have pain for four years, but we would be rocking coming the other route, they grew their revenue, what, 42%? But I listened to the market, I listened to analysts and I did it that way and it didn’t not you, victor. Not you. Barry’s face contorted. Not you Victor

Victor Miller

I have to apologize on behalf of all of us.

Alfred Liggins

But I tried to do what the market wanted us to do and you know what, it was a bad business decision to do it that way. Now, it was a good business decision to do the deal. So anyway, long story short, Interactive, we own almost all of it, except for the management. It’s set up like a venture deal because you can’t get really talented online people for salary. So instead, of like a venture deal, it has got a management pool, but at the end of the day, it is a Radio One sub and it will be -- when it is successful, then it will contribute mightily to our growth rate. Was there one more question that you had?

Victor Miller

Just the second quarter outlook, whether it is kind of similar to what you saw first quarter or saw first quarter?

Barry Mayo

Victor, honestly, I don’t want to give you a lot of information about Q2 because business is booking later than it ever has in the history that I have been in the business. And I don’t want to mislead you, but in answer to the second part of that question, I do expect our markets to continue -- our stations to continue to outperform our markets. Whether we can keep a gap as high as what we just did, I can’t tell you that, but I fully expect.

Alfred Liggins

And I am going to override Barry and Peter a little bit on this and just kind of go out on a limb. We are not seeing substantial downdraft past, over Q1, from where we look at Q2 today. So, we are not looking in the face of Q2 saying, oh, my God, for us, things are getting worse. We are feeling like -- we’re feeling pretty good around here.

Victor Miller

Thank you. Thanks for the commitment, sir.

Alfred Liggins

Now, I just say that. Watch, next week’s bookings will fall off the face of the earth. It is up and down. It’s crazy. For Q1, we were feeling really good after February and then March national just imploded like out of nowhere.

Victor Miller

So you’ve learned the lesson big fish eat little fish.

Alfred Liggins

There you go. You know what -- put it this way, in our format, I thought we were a big fish, but unfortunately I have been informed that our format doesn’t always just count. It’s the whole radio universe.

Victor Miller

Thanks, how that works. Thank you.

Alfred Liggins

Thanks.

Operator

And our next question comes from Bishop Cheen with Wachovia. Please go ahead.

Bishop Cheen

Thank you for taking the question. Hi, Alfred and Peter, Linda and Barry. Peter, you did such a great job talking and Alfred too about your balance sheet. Let me focus on it because you guys still have some moving parts and I want to get it right. I know that we are yet to close on LA. I know we are yet to close on CCI for the transaction?

Alfred Liggins

No, no, CCI is done.

Bishop Cheen

Done. That was done. I’m sorry done in April in Q2, right?

Peter Thompson

Yes, so you don’t see that on the balance sheet here, but it’s a Q2 event.

Bishop Cheen

WP or STC is that closed?

Peter Thompson

No, that is going to close at the end of Q2.

Bishop Cheen

End of and that is $38 million also or $35 million. Didn’t you already put three in escrow?

Peter Thompson

That’s right.

Bishop Cheen

Okay. And then Miami is done, 13 and change, right?

Peter Thompson

Correct.

Bishop Cheen

Okay. So roughly $74 million net more debt to come onto the balance sheet when everything clears?

Peter Thompson

We borrowed $34 million against Community Connect if that helps you, so it is $34 million and $35 million, yes

Bishop Cheen

All right, so that borrowing is already reflected on this March 31 balance sheet?

Peter Thompson

No, it was an April borrowing

Bishop Cheen

Alright, I am just trying to take the March numbers and do all the additions and subtractions to get to your balance sheet.

Peter Thompson

Alright, so I think you need to add on the $34 million that we borrowed to find CCI and then add on $35 million for WPRS, although we may look at financing that in a different way.

Alfred Liggins

Yes, Bishop, one of the things I haven’t mentioned, I think I mentioned it on the last conference call we are contemplating actually financing some portion of PRS off balance sheet secured by that asset and that asset only to create some extra cushion and flexibility in our primary capital structure at Radio One. Does that make sense to you?

Bishop Cheen

It does except when I heard your comment five minutes ago about how you would rather not do it off balance sheet.

Alfred Liggins

I never said that. No, no, no. Radio One will own 100% of the equity of PRS, all right, but the debt that will be financed will be segregated off balance sheet.

Bishop Cheen

Okay. That makes sense. Alright, but you haven’t decided exactly how the structure is going to be, but that’s probably going to happen in this current Q2?

Alfred Liggins

It has to close by June 30. We will make a decision as to whether or not we are going to finance it inside Radio One or outside Radio One. If we decide to finance it outside Radio One, it will probably create $20 million to $25 million of extra.

Bishop Cheen

Got it. This is helpful. I just need to ask a couple of more minutias and I promise to leave you alone. You used to have, and I know you redid this back in September, but you used to have a $500 million revolver. Was that reduced to a $300 million?

Alfred Liggins

No it’s quietly less the number nobody to touch; it’s still $500 million. We paid down our term loan by we had a permanent reduction in our term loan by some small amount. I don’t remember what it was.

Bishop Cheen

Okay. So right now, when I add up the March 31 numbers with the detail you always give, which is very helpful, it looks like you have about $313 million in term debt at March 31?

Peter Thompson

No, it is about $192.5 million in term.

Bishop Cheen

Okay. So I was just looking at the swaps there on the selected leverage and swap data. And what can I --?

Alfred Liggins

Bishop, if you want Peter to walk you through the exact balance sheet and the long-term.

Bishop Cheen

Should I do it offline?

Alfred Liggins

Yes, because it sounds like you have got a lot of specific nits and gnats and we will give you.

Bishop Cheen

Well, yes, because it helps us all keep score going forward.

Alfred Liggins

We would be happy -- that is all -- we will be happy to give you everything that you need.

Bishop Cheen

I will do that and I will move it along. Thank you.

Peter Thompson

Just to follow through because we can summarize. If you want to walk forward, I think you need to add in around $70 million of debt for the acquisitions we just talked about, back out say $10 million for the Miami money coming in, gets you to about $60 million add-on and then obviously we have got the LA money to come against that. So there

Bishop Cheen

Yes, so that got back to my net $74 million more debt.

Peter Thompson

I make it -- right. I make it $69 million less $10 million, so I make it $59 million. Sorry, you are talking about net debt reduction, yes.

Bishop Cheen

Yes, just looking at all the pluses and minuses, I had a seven handle on the incremental debt.

Alfred Liggins

You are talking about the net debt reduction. You didn’t use the reduction -- you didn’t use the reduction.

(Multiple Speakers)

Alfred Liggins

The way you worded it, it sounded like additional.

Bishop Cheen

No, I’m sorry. Less debt when all the smoke clears and again, it could even be less if you keep DC off balance sheet.

Alfred Liggins

It could be a $100 million debt reduction.

Bishop Cheen

Okay. That is very helpful.

Peter Thompson

And again, it is all in the name of creating flexibility in the balance sheet and staying away from our covenants and also being able to achieve some of the goals that will create shareholder value like stock buybacks.

Bishop Cheen

I heard you. Priority one at Radio One.

Alfred Liggins

You got it.

Bishop Cheen

Thank you.

Alfred Liggins

Thank you, sir.

Operator

Our next question is from Marci Ryvicker with Wachovia Securities. Please go ahead.

Marci Ryvicker

Thanks, I have a couple of questions. First, Barry, can you repeat the political number in the first quarter?

Barry Mayo

$1.2 million.

Marci Ryvicker

Okay, and then.

Barry Mayo

20,000 last year.

Marci Ryvicker

Okay. And then can you tell us at least how April finished at the stations?

Alfred Liggins

No, we can’t tell her that.

Marci Ryvicker

And then how should we think about Reach Media and GIANT in the second quarter? Should we anticipate revenue declines or no?

Alfred Liggins

In the second quarter actually, you know what, actually the revenue decline in Q1 was associated with the lack of television syndication revenues. So Reach’s base business is pretty steady state, okay, because they have a revenue guarantee from ABC Radio Networks. So the Q1 was an anomaly. We don’t want to get into sort of giving you sort of projected forward looking guidance information on Q2, but understand Reach’s business is pretty steady state because that revenue guarantee also, as I remember, don’t quote me on this, but I think it has modest increases as well so for the next couple of years and I think it ends at the end of ’09. At the end of ’09, Reach’s business is solid and it will have a little lumpiness because of the television thing, but for the most part, most of the revenue is guaranteed.

Marci Ryvicker

Thank you.

Alfred Liggins

You welcome thanks Merci.

Operator

And our next question is from Shelley Bergman with Morgan Stanley

Shelley Bergman

Hi, guys. I have listened to a lot of conference calls of yours over the last two years and I am a shareholder on behalf of myself and about 400 accounts I run on a discretionary basis. I hear about the enhancing values, I hear about excuses about the industry. We all know the industry has been tough. I hear about all of these things, yet if I recall about two years ago, there was a pretty large stock sale by a couple of family members in the six range and I know obviously you work for the company, your net worth is in the companies and it was pretty bothersome to see a pretty large stock sale under $0.01. Now this may be a margin call or something else.

Alfred Liggins

Let me stop you before you go there so I can get there. A, that was let me just stop you because and you can finish your point. That what you saw recently was not a stock sale. That was the unwinding of the forward sale that you saw two years ago at $0.07 and those trades unwound at the end of April and the bank sold the stock. There ain’t no way, no how that we are selling stock at $0.01. So that is what you saw. Three or four of our largest shareholders who saw it were concerned and actually called us, and we told them, you know, what it was. But we didn’t sell stock. So I just want to clarify that and go ahead and finish your point.

Shelley Bergman

It was a forward sale done at $0.07.

Alfred Liggins

Yeah.

Shelley Bergman

Okay, so at that time if I recall a similar question was asked if the stock is so cheap and you are in there buying stock, why are you selling?

Alfred Liggins

The answer is that we’ve owned this company since 1980. We started out probably with roughly, I don’t know, 20 million shares, something like that. Neither one, there has never been any dividends paid, we have never taken out huge sums in terms of current compensation. And me and my mother over 25 years need to live. We need to have houses, we need to take care of our family members and we need to get some liquidity in order to do things. And so when you work for some place for 25 years, all of the things that happen in a life-change over that 25 years happened. I bought my first house, I built my first house, my mother did the same thing.

Shelley Bergman

You don’t have to get into that. You explained it fine. I think from a public relations standpoint and you are in the media space, somebody should get out there and explain what those sales were because in an environment where you are seeing insiders sell at a 20-year low, it doesn’t look good and you would figure somebody would waste their time drawing up a press release explaining what those sales were.

Alfred Liggins

I agree with you and quite frankly, it hit me by surprise as well because once I did the deal two years ago, the next the next thing I knew was it unwound and it hit the tape and I am doing damage control. So you are right and --

Shelley Bergman

Usually when these things hit the tape, it shows that the bank is selling the stock.

Alfred Liggins

Well, I don’t know why it looked like we were selling it.

Shelley Bergman

Maybe you should call your banker, Wachovia or whoever it may be and explain to them that if they want an ongoing relationship, they should get it right.

Alfred Liggins

I understand and you are right.

Shelley Bergman

Next, we know the company has obviously sold some key assets and it seems like you have got a pretty reasonable price over the last two years. You have been basically bulking up for an industry that is in a downtrend. With that said, it would seem that now you are talking about doing a buyback. Why would you just be in the market doing a buyback rather than a Dutch tender or something like that? And secondly, don’t you possibly need a big chunk of cash coming into a TV ONE negotiation in the next two years? Hold on, let me just finish. Where if you don’t have cash, it would seem somebody is going to slam, excuse my French, your balls to the wall.

Alfred Liggins

Right. Is that French? I thought I used to hear that down in Southeast Washington. Anyway, you know what, we have not really debated the merits of a tender offer versus just being in the market. Obviously being in the market, I am going to pay the market price and I have to pay any kind of premium whatsoever. So that is the advantage of it and yes, it takes. But I wouldn’t rule out us considering some sort of tender offer, but the prevailing thinking is that everyone wants to buyback stock. That is the first thing. And second, how we go about it we really haven’t come to grips completely with yet because we had to create the capacity to be able to do that and so once all this stuff closes, as I said before, we are going to sit down and figure out what’s the most efficient way and cost efficient and also time efficient way to get it done. The TV ONE negotiation doesn’t happen. We don’t have the right to call out the financial investors until October of ’09.

So it is not two years, but it is a year and whatever eight months and that is a fair ways off. I don’t think we should forgo buying back the company at $0.01, preparing for a negotiation and a buyback a year and eight months down the line. And by the way, when we do buy back on the TV ONE stake, TV ONE will be cash flow positive. So there will be leverage ability at the TV ONE level. So we are not looking to do it just on Radio One’s balance sheet alone. And there are two partners that have the

Shelley Bergman

I think the assumption is that the banks are just going to be able to go in there and do what you guys basically have done in the past. We are in a different world.

Alfred Liggins

Look, I agree with you, but we have got to balance the decision to buy back the company or buyback shares now at very depressed levels or prepare for a TV ONE buyback a year and eight months early. And quite frankly, I am prepared to take the chance that the world will be in a place where we will be able to accomplish the TV ONE buyback in a year and eight months. And that is just a philosophical difference. In business, you take risk and that would be a risk that we would take.

Shelley Bergman

To the other holders of TV ONE, I think it is a pimple to you guys, it is a big deal.

Alfred Liggins

Actually the holders that we are going to buy out of the roughly 18% that are financed, it is not a pimple, its three venture capital firms. Two are minority based all right? So, this is going to be real money to them and one is a fund that is a couple hundred million dollars and it is real money to them too. So, DIRECTV doesn’t have a right to participate in the buyback, so it is just us and Comcast. So, we will get it done. By the way, it is going to be fair market value and I don’t know what that fair market value is going to be, but I don’t see the aggregate being greater than $100 million.

Shelley Bergman

For the buyback or for the whole fair market value of the station?

Alfred Liggins

For the buyback portion.

Shelley Bergman

Okay. Has anybody done a recent evaluation that you have confidence in that is in the range of what the TV ONE asset could be worth of just asking for ranges?

Alfred Liggins

There is a value -- I am not going to give you a range, but there is a valuation done on TV ONE every year, by an independent third-party appraisal company and it is not worth the paper it is written on because at the end of day you know it’s going to get stalled at what those two willing parties the buyer and the seller determined that they are willing to negotiate or it going to go to this appraisal process, where we will get a low one, they will get a high one and then it will be averaged. And I have no idea where that is going to come in yet, but today’s valuation of it doesn’t really mean anything in terms of what we are going to have to buy it out at in a year and eight months.

Shelley Bergman

And one last question, can you get somewhat specific house of the trends are of for TV ONE, you are happy with it?

Alfred Liggins

Put it this way, we gave, for the first time ever, a revenue number that -- revenue is up 40% in Q1. Yes, I am really happy with that. Second --

Shelley Bergman

What with the number or revenues of 40% from what to what?

Alfred Liggins

I’m not -- we are not going to do that, we are not going to give you -- right now we are not publishing revenue and expense number. The best information I am going to give you is that things headed towards breakeven over the next 12 months. Nothing really should get in the way of that over the next 12 months, primarily because the kicker on the revenue is going to be license fees that jump up in our contractual that’s the cable and satellite companies are obligated to pay us. We are going to end up spending less money to breakeven. We had raised $130 million how we’re going to get it done for call it $105 million to $110 million. And, what I am not happy about is I am not happy with the fact that I haven’t gotten Cablevision and I haven’t gotten EchoStar yet but those of the two top distributors to get done in the to get done. If Charlie Ergen or Jim Dolan, tell you them that you are a shareholder and TV ONE is a great asset and they should really carry it provide diversity to their African/American subscribers and lastly, because I know that its going to be tough for us to get those last two distributors our growth is got to come from weightings growth. And so, we need to come up with a program strategy that will allow us to grow our ratings fast whether at today. And today, last of new startup cable network to kill the how our ratings, but we think that we can do better, and so that’s what our focus.

Shelley Bergman

All right, just one comment and then I will let you go. I know you have to reply to this. If I would have to talk to Mr. Dolan, he doesn’t listen to me, he doesn’t listen to anybody, so that is not a good route.

Alfred Liggins

He certainly hasn’t listened to me, so I am searching for help. Alright, thank you, sir.

Shelley Bergman

Make the numbers explode, I think he will.

Alfred Liggins

We have got time for one last question. It’s like 11 O’clock.

Operator

Very good. The last question will come from the line of Fred Moran with Stanford Group. Please go ahead.

Fred Moran

Thanks very much. Alfred, your new compensation package includes a 70% salary increase to almost $1 million, $1 million signing bonus because you have been underpaid for three years, a $4.8 million make-whole payment for stock losses. Can we hear from you specifically how that was justified given $2 billion of lost shareholder value, an $80 million market cap, $800 million of debt and a company that is very tight on its covenants?

Alfred Liggins

Two things.

Barry Mayo

I was going to say let me jump in here because I specifically went through the process that the compensation committee undertook in negotiating this package. And I think the way we would like to handle this issue is if you want to submit written questions on it. We would deal with those at the annual shareholder meeting, which is coming up imminently, rather than --

Alfred Liggins

The shareholder meeting is on the 28th of May.

Barry Mayo

28th of May, rather than I’m not sure it’s for Alfred to defend that I think it’s for the compensation committee to answer your questions quite frankly.

Fred Moran

I just thought Alfred might want an opportunity to explain it to shareholders?

Alfred Liggins

And put this way, at the end of day, it is a little odd for me to have to defend my own compensation package. But I would absolutely defend it because, I have got answers for everything that, have been questioned. But the Board has determined and the comp committee has determined because they all very savvy, very versed, number of venture capitalists on business and they are perfectly willing to answer any questions and addressed in person at the shareholders meeting. So, anybody that has serious concerns, question should put them in writing send them to the Board and the Comp Committee come to the shareholders meeting or we will send them back to you in writing and they can let people know exactly why they did, what they did because, at the end of the day, I don’t control the Comp Committee and they are independent directors and again, they are stand-up real business people that run funds and businesses and the whole bit and they are willing to justify their own actions and their thought own process in approving the compensation package for myself.

Fred Moran

Okay, thank you.

Alfred Liggins

You are welcome. Everybody, thank you so much for your time and your support and we are as always available offline for any further conversations that you would like to have. Operator, close out.

Operator

Certainly. Ladies and gentlemen, as a reminder, today’s conference call is available for replay starting today at 1:30 pm and running through 11.59 pm eastern time tomorrow. You can listen to the replay service by dialing 320 365 3844 and entering today’s conference access code of 917 331. And that does conclude our earnings conference call for today. Thank you for your participation. You many now disconnect.

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